| College costs are going through the roof, what's a | | | | regardless of income. Some 529 plans can be opened |
| parent to do? There are several clean and simple | | | | with as little as $25. |
| methods to saving for college that may work for you | | | | The account owner maintains full and complete control |
| and your young family. | | | | over the account regardless of the beneficiary's age, |
| What is the inflation rate for college and is it as bad as | | | | the account value is removed from the contributor's |
| it feels? The price of a college education rises | | | | estate, and qualified withdrawals may also be used at |
| somewhere around 8% annually, more than twice the | | | | any eligible educational institution in the country. |
| rate of general inflation. Saving for college is therefore | | | | The big difference is funds cannot be used for K-12 |
| crucial, and you're doing the right thing thinking about | | | | expenses. I would recommend this plan for |
| solutions now, rather than later. | | | | higher-wage earners who want to contribute |
| With younger children, time is on your side. For | | | | high-dollar amounts, and who want to remove assets |
| example, if you started to invest $100 a month per | | | | from their estate for estate planning purposes. |
| child, and earned 8% on that investment, a 5-year-old | | | | Then there's the Section 529 Prepaid Plan. This option |
| will have over $27,000, and a 2-year-old will have over | | | | allows the parent to pay for tomorrow's college tuition |
| $38,000 saved toward college. | | | | in advance, at today's price. The advantage to this |
| There are many ways to finance a college education. | | | | option is that funds invested now won't fall behind |
| One of the oldest, and least attractive, is through the | | | | tomorrow's cost of college tuition. It's a plan that allows |
| UTMA, the Uniform Transfer to Minors Act. An UTMA | | | | for tax-free distributions for higher education, but it's |
| account is simply a bank or brokerage account in your | | | | really for those who know which school they want |
| child's name with one parent as custodian, but there | | | | their child to attend, want to lock in expenses now, and |
| are at least three drawbacks. First, if you as parents | | | | for those who are uncomfortable investing in the stock |
| gift a large amount into the account, there may be a | | | | and bond markets. |
| gift tax due. Second, UTMA accounts are subject to | | | | California is one of the 33 states that do not offer the |
| high taxes. Third, when your child turns 18, they can do | | | | pre-paid option, although individual educational institutions |
| anything they want with that money, there are no | | | | might. |
| strings attached and no conditions on college | | | | Lastly, I'd advise you to look into US Savings Bonds, |
| attendance. | | | | Series EE or I. The U.S. Government issues bonds that, |
| A better alternative may be to open a Coverdell | | | | under certain specific circumstances, pay tax-free |
| Education IRA. The principle appeal of the Coverdell | | | | interest if used for higher education. The big plus is that |
| Education IRA is its tax-favored status. There is no tax | | | | it's guaranteed by the government. But the bond value |
| deduction for money deposited, but it does grow | | | | is still included in the contributor's estate, and the |
| tax-free if used for qualifying education expenses. The | | | | maximum annual contribution is $30,000 face value. |
| Coverdell Education IRA has the added distinction of | | | | Higher-income earners may not qualify to make |
| allowing the funds to be used for K-12. In fact, funds | | | | contributions, and returns are fixed and might be lower |
| can be withdrawn tax-free if used for qualified K-12 or | | | | than other investment options. This is by far the most |
| higher education expenses. The account value is also | | | | conservative option available, and people who |
| removed from the contributor's estate. | | | | generally choose to go this route are willing to forgo |
| Some disadvantages do exist for high-income earners. | | | | potential greater returns in exchange for the |
| They may not qualify to make contributions, and the | | | | governmental guarantee. |
| maximum annual contribution from all sources can't | | | | I've only listed five ways to save for college. Let them |
| exceed $2,000. Also, control over the account doesn't | | | | serve as starting points for you and your family. For |
| go to the beneficiary until age 30. | | | | more college financing strategies, search the web for |
| Consider the Section 529 College Savings Plan. | | | | "saving college" and you will find a number of useful |
| Named after the portion of the IRS tax code which | | | | resources. |
| created them, Section 529 plans are like the Coverdell | | | | The big incentive to start saving now is to assure your |
| Education IRA, because it allows contributions to grow | | | | child the luxury of NOT having to deal with repaying |
| tax-free if used for qualifying education expenses. | | | | college loans, and being in financial debt the moment |
| Some states even allow an income tax deduction for | | | | they earn their diploma. Establishing a plan now to |
| contributions. | | | | save for educational expenses can help make that a |
| But unlike the IRA, this plan lets you place up to | | | | reality. What a truly valuable gift you will have |
| $60,000 in the account in one year with no gift tax | | | | delivered. |
| consequence, and anyone can contribute to a 529 plan | | | | |